April 02, 2008
"Why the euro is unlikely to eclipse the dollar"
"Reports of the dollar’s death are greatly exaggerated." -- Barry Eichengreen and Marc Flandreau
Posted by Dingel at 11:08 PM | Comments (0)
February 26, 2008
Against financial globalization
Dani Rodrik and Arvind Subramanian want to stem financial globalization:
If the risk-taking behaviour of financial intermediaries cannot be regulated perfectly, we need to find ways of reducing the volume of transactions. Otherwise we commit the same fallacy as gun control opponents who argue that “guns do not kill people, people do”. As we are unable to regulate fully the behaviour of gun owners, we have no choice but to restrict the circulation of guns more directly.What this means is that financial capital should be flowing across borders in smaller quantities, so that finance is “primarily national”, as John Maynard Keynes advised. If downhill and uphill flows are both problematic, capital flows should be more level.
But how is such a levelling-off of flows to be achieved? In the current context, the source of liquidity is large current account surpluses in the oil-exporting countries and east Asia, especially China. Reducing these should be a high policy priority for the international community. Two concrete actions – one for each source of liquidity – suggest themselves.
First, some variant of petrol tax in the main oil-importing countries (including the US, China and India) is essential to cut demand and reduce oil prices and hence the current account surpluses of oil exporters. That such measures should be taken for environmental reasons or that they would reduce the size of sovereign wealth funds only adds to their attractiveness. Second, some appreciation of east Asian currencies is necessary to reduce their surpluses. Even though undervaluation is a potent instrument for promoting growth in low-income countries in general, at this juncture self-interest on both sides calls for an orderly unwinding of current account imbalances...
Financial globalisation has not generated increased investment or higher growth in emerging markets. Countries that have grown most rapidly have been those that rely least on capital inflows. Nor has financial globalisation led to better smoothing of consumption or reduced volatility. If you want to make an evidence-based case for financial globalisation today, you are forced to resort to indirect and speculative arguments.
It is time for a new model of financial globalisation, one that recognises that more is not necessarily better. As long as the world economy remains politically divided among different sovereign and regulatory authorities, global finance is condemned to suffer deformations far worse than those of domestic finance. Depending on context, the appropriate role of policy will be as often to stem the tide of capital flows as to encourage them. Policymakers who view their challenges exclusively from the latter perspective will get it badly wrong.
Mark Thoma has Frederic Mishkin's contrary view.
Addendum: See the discussion at Martin Wolf's forum. William Easterly says "To say that there are crises because of international capital flows is not very meaningful; it is like saying there are recessions because of GDP." Emmanuel argues that "the genie of freer capital flows escaped from the bottle after the collapse of the Bretton Woods system and cannot be put back."
Posted by Dingel at 08:32 AM | Comments (2)
February 22, 2008
Cheering the dollar's fall
10 countries that benefit from the falling dollar. Some of the arguments are spin (I'm skeptical that de-dollarising Afghanistan necessarily helps Afghans), but someone has to cheer for the correction of global imbalances.
Posted by Dingel at 08:22 PM | Comments (0)
February 10, 2008
SWFs: No code of conduct likely
Brad Setser says that a voluntary code of conduct for sovereign wealth funds looks like it has little chance.
Posted by Dingel at 08:13 PM | Comments (0)
January 25, 2008
Growing fears about sovereign wealth funds
Sovereign wealth funds are a hot topic. The US and IMF are stepping up the pressure at Davos for a voluntary code of conduct, and Philipp M. Hildebrand endorses a code as a means of staving off protectionism at Vox. Meanwhile, Dan Drezner is not as worried.
Posted by Dingel at 08:12 AM | Comments (0)
December 14, 2007
Is the dollar dive reducing global imbalances?
The FT on the dollar: adjustment or affliction?
But the growing evidence that the dollar’s decline will not be followed by a narrowing of global imbalances, merely a shifting of them around the world, gives cause for real concern.Normally cool heads in central banks and international organisations are uttering notes of alarm. Mervyn King, governor of the Bank of England, warned last month, for example, that the big upward movements in other Group of Seven leading countries’ currencies against the dollar, while many oil states and China maintained a de facto dollar peg, were causing “great currency tensions”.
“I came away from the IMF meetings in Washington recently more concerned about the implications of these tensions precisely because the unwinding of the imbalances is not just a hypothetical prospect out there, but is happening now,” he said.
Posted by Dingel at 03:22 PM | Comments (0)
December 04, 2007
Foreign Capital and Economic Growth
E. Prasad, R. Rajan & A. Subramanian say that capital outflows are correlated with greater economic growth.
Posted by Dingel at 04:12 PM | Comments (0)
November 26, 2007
RIP BW2
Wolfgang Munchau says Bretton Woods II is dead.
Posted by Dingel at 06:36 PM | Comments (0)
November 11, 2007
Brittan: Are the imbalances on the mend?
The FT's Samuel Brittan on whether international imbalances are a problem:
The morals I drew were, first, that the onus of proof was on those who regarded it as a problem, and second, that many of the advocated remedies could be worse than the disease....Yet such is the perversity of humanity that governments could make the imbalances into a problem where none existed before. If the deficit countries are to reduce their deficits, they have to switch resources from home markets to exports or import saving activities. It would be lovely if this could be done painlessly without impinging on output and activity. But a substantial structural change of this kind does require some sort of domestic slowdown while resources are being switched.
The danger, in a nutshell, is that central banks and governments are so assiduous in promoting domestic growth that they will not tolerate a few quarters of lacklustre GDP performance. In that case, deficits will never be allowed to contract properly and will become a problem which they might not have been to start with. All I can suggest is that, in their regular interest rate decisions, they should err on the side of caution.
Posted by Dingel at 06:26 PM | Comments (0)
November 06, 2007
Baker on dollar decline
Dean Baker defends President Bush:
So who is to blame for the falling dollar in this story? The answer is simple: Robert Rubin and the people who let it become overvalued in the first place. The high dollar of the second Clinton administration produced beneficial short-term effects (at least for people who did not have to compete against imports), but had inevitable long-term costs. We are now experiencing these long-term costs in the form of the decline of the dollar, which will lead to higher inflation and quite likely higher interest rates.In this particular case, President Bush and his tax cuts are innocent bystanders. If anything, the expected effect of his tax cuts should be to raise the value of the dollar because the resulting budget deficits lead to higher interest rates in the United States.
In short when looking for people to blame for the falling dollar, the spotlight should be focused on the people who gave us the high dollar. It was a story of short-term gain for long-term pain, just like the Bush tax cuts, except the impact of the overvalued dollar is considerably larger.
UPDATE: knzn defends Rubin, arguing that hot air (the 'strong dollar' mantra) doesn't hold much sway in foreign exchange markets.
Posted by Dingel at 09:25 AM | Comments (0)
November 04, 2007
DeLong on global imbalances
Brad DeLong brings good news:
As long as imbalances of world trade and capital flows unwind slowly and smoothly, the magnitude of any global economic distress should be relatively small... The prospect of a truly hard landing -- one where global investors wake up one morning, suddenly realize the US current accounts cannot be sustained, dump dollars and crash the global economy -- is becoming less likely with each passing day.
And warnings:
Under two scenarios -- both concerning China -- the unwinding of global imbalances could cause regional if not global depression... Today, the principal source of international economic disorder is made in China, owing to factions inside its government that hope to avoid a more rapid appreciation of the yuan's value.
Via Thoma.
Posted by Dingel at 08:53 PM | Comments (0)
October 28, 2007
Eichengreen and Mundell on China
Bloomberg's Tom Keene interviews Barry Eichengreen (mp3) about his recent article "A Blueprint for IMF Reform" (pdf), which appeared in International Finance, as well as China's possible future revaluation of the renminbi, the post-Bretton Woods era, and "strong dollar" rhetoric.
Keene also interviewed Robert Mundell last week (mp3), discussing the origins of the Mundell-Fleming model, China's domestic macroeconomic reasons for pegging the renminbi to the dollar, Chinese portfolio choices with regard to US assets, and other topics.
Posted by Dingel at 09:45 PM | Comments (0)
October 20, 2007
Subsidize outsourcing?
Greg Mankiw reports on a proposed alternative to traditional foreign assistance: tax credits to encourage FDI in developing countries.
Posted by Dingel at 04:38 PM | Comments (1)
October 14, 2007
US FDI in China
Lee Branstetter & C. Fritz Foley on "Facts and Fallacies about U.S. FDI in China":
Fallacy Number 1. U.S. FDI in China is largeFIE investment in fixed assets accounts for only about 10% of total fixed asset investment in China... American investment in China accounts for a relatively small portion of total U.S. multinational activity around the world...[Gravity model] results point out that levels of U.S. MNE activity in China are lower than would be predicted by a simple model in which levels of MNE activity vary with distance and country size...
Fallacy Number 2. U.S. FDI in China is Export-Oriented
The data illustrate that in 2004, about $39.7 billion of local affiliate sales were directed to the local market and only $3.7 billion were directed to the U.S. market. In that year, U.S. exports to affiliates and U.S. imports from affiliates comprised less than 5% of affiliate sales. These patterns are not consistent with the hypothesis that U.S. affiliates operating in China are contributing to the large U.S. trade deficit by producing there and selling back to the U.S... Wal-Mart and other large-scale U.S. retailers typically procure their goods from China-based export-oriented manufacturing plants that are not U.S.-owned to any significant degree...
Fallacy Number 3. U.S. multinational investment in China displaces investment elsewhere.
[F]irms that expand in China are almost as likely to expand employment domestically as they are to cut it. This evidence is not what one would expect if growth in China were strictly displacing activity in the U.S...
Fallacy Number 4: U.S. multinationals are aggressively exploiting China’s growing technological prowess
In the U.S., China is often perceived as being an emerging technological superpower. Industrialists, economists, and policy makers believe that China is becoming an attractive location to perform innovative activity... Several considerations suggest these views are overblown... Only $622 million was spent by U.S. MNEs on R&D in China, an amount that is about 3 tenths of one percent of the total R&D undertaken globally by U.S. MNEs... From the beginning of 2000 to the end of 2006, the U.S. PTO granted 3,447 patents to inventors based in China or teams of inventors that included at least one member with a Chinese address. Over the same period, inventors with ties to Japan received nearly 241,000 patents... Interestingly, the leading patent-generating firm in China, with more than four times Microsoft’s cumulated patent stock and a commanding lead over any indigenous mainland Chinese firm, is the Taiwanese contract manufacturing firm, Hon Hai, also known by its English trade name, Foxconn... it appears the Taiwanese firms are more aggressively exploiting the opportunities to conduct research in China, such as they are, than are their U.S. counterparts... Despite impressive progress and spectacular growth in human capital, China’s transition to status as a significant net exporter of innovative goods and services almost certainly lies many years in the future.
Posted by Dingel at 10:03 AM | Comments (0)
October 02, 2007
The dollar dive
I'm an American studying in the United Kingdom, so it's bad news that very smart economists think the dollar is due for a plunge.
Posted by Dingel at 01:10 AM | Comments (0)
September 26, 2007
Chinese FDI is unexceptional
A recent NBER working paper argues that China is not receiving exceptional levels of foreign direct investment:
Abstract: Weak institutions ought to deter foreign direction investment (FDI), and mass media stories highlight China's institutional deficiencies, yet China is now one of the world's largest FDI destinations. This incongruity characterizes China's paradoxical growth. Cross-country regressions show that China's FDI inflow is not exceptionally large, given the quality of its institutions and its economic track record. Institutions clearly determine a country's allure as an FDI destination, but standard measures of institutional quality can be problematic for countries undergoing rapid institutional development, and can usefully be augmented by economic track record measures. Deng Xiaoping's 1993 "southern tour" heralded sweeping reforms, and this regime shift is insufficiently reflected in commonly used measures of institutional quality. China's FDI inflow surge after these reforms resembles similar post-regime shift surges in the East Bloc, and so is also unexceptional. Recent arguments that China's FDI inflow is inefficiently large because weak institutions deter domestic investment while special initiatives attract FDI are thus either unsupported or not unique to China.
Posted by Dingel at 07:01 PM | Comments (0)
September 01, 2007
IPAs & Inshoring
If you're not familiar with the phenomena, here are good introductions to investment promotion agencies and inshoring.
[HT: Thoma]
Posted by Dingel at 09:47 AM | Comments (0)
August 23, 2007
Chinese monetary policy
Marvin Goodfriend and Eswar Prasad rethink the renminbi debate at VoxEU:
[U]ntil recently, the rise in the US trade deficit with China was matched by the decline in the deficit with the rest of Asia, leaving the US deficit with all of Asia unchanged. China’s accession to the WTO in 2001 opened up US markets to Chinese imports and more Asian trade is now routed through China in order to take advantage of cheaper labour there to process and package goods in their final stages of production. So the bilateral US (or EU) trade deficit with China is not in itself very meaningful.Moreover, the renminbi has been maintained at a stable rate relative to the US dollar for over a decade now, even during the Asian crisis when the Chinese were under pressure to devalue the renminbi. So to argue that the fixed exchange rate reflects a new and deliberate policy of undervaluation is disingenuous.
Nevertheless, economic fundamentals — such as the rapid productivity growth in China — clearly point to strong pressures for the renminbi to appreciate in value...
This debate has so far been framed in a way that largely misses the key point. What is essential for China is to have an independent monetary policy oriented to domestic objectives. China’s monetary policy has hitherto been hamstrung by the tightly managed exchange rate regime. This regime prevents the People’s Bank of China (PBC) from raising interest rates to manage domestic demand since such a move could spur further capital inflows and increase pressure on the exchange rate. Giving the PBC room to raise interest rates by freeing it from having to target a particular exchange rate would help rein in credit growth and deter reckless investment, reducing the risk of boom-bust cycles. A key point here is that an independent monetary policy requires a flexible exchange rate, not a one-off revaluation.
Read the full piece to learn about their (daring?) policy prescription: inflation targetting.
Posted by Dingel at 08:31 PM | Comments (2)
August 22, 2007
What's the US advantage in FDI returns?
"U.S. investors earn a significantly higher rate of return on their foreign investments than foreigners earn in the United States... about one-third of the excess return earned by U.S. corporations abroad can be explained by firms reporting "extra" income in low tax jurisdictions of their affiliates." - Barry Bosworth, Susan M. Collins & Gabriel Chodorow-Reich
Posted by Dingel at 06:45 PM | Comments (0)
June 28, 2007
Whom to trust?
Harold Meyerson on an increasingly important puzzle - international capital flows controlled by governments:
China just bought itself a $3 billion share in Blackstone, the U.S. private equity firm.To be sure, the Committee on Foreign Investment in the United States has the power to nix such purchases if they compromise national security. But what is the proper response of laissez-faire advocates to this sudden wave of foreign government investment in non-security-related companies? It's okay if the Chinese government owns a slice of our economy but not okay if our own government does? We trust every other government more than we trust our own?
I posed this question to William Niskanen, chairman of the libertarian Cato Institute and among the most principled ideologues on our political landscape. Foreign government ownership, he argued, shouldn't pose a problem unless that government obtains a controlling interest. When I then asked whether it would be a problem for the U.S. government to buy into such a company, he answered immediately, "I don't think I would want to be a shareholder in a company in which the U.S. government owned a good bit of the shares," and then, pausing, continued, "I haven't thought about this" -- "this" being the distinction between U.S. ownership and, say, Chinese.
Niskanen is hardly alone. None of us have thought sufficiently about how the belief in untrammeled capitalism could lead to foreign governments, whatever their agendas, controlling more and more of the American economy.
Via Thoma.
Posted by Dingel at 08:01 PM | Comments (0)
June 26, 2007
"Colonialism all over again"
A fascinating CSM story on Chinese investment in Africa:
Brad Phillips, director of Persecution International, an aid group working in South Sudan, has seen the destruction firsthand. "The Chinese are equal partners with Khartoum when it comes to exploiting resources and locals here," he says. "Their only interest here is their own." He would love to see the Chinese sponsor a school here, he says, or a clinic, or an agricultural program, or "anything for the people." But there is nothing like that in sight. Just miles of desolate land."The Chinese simply do not care about us," says Martin Buywomo, Paloich's mayor. "They have no contact. They never even came to my tent to pay respects. They think we are lesser people." A member of the Shilluk tribe who attended British mission schools, Mr. Buywomo puts down the worn copy of George Eliot's 19th-century classic "Silas Marner" he is reading and continues sadly. "We see them in their trucks but they overlook us. If they saw us dying on the road, they would overlook us."
Buywomo rearranges the Chinese-made plastic pink flowers on his desk. "This is colonialism all over again."
I doubt that US investors like Chevron built many schools or clinics, but accusations of "scorched-earth clearances of the indigenous population" don't sound good for China's National Petroleum Corporation. Read the full story.
[HT: Drezner]
Posted by Dingel at 02:16 AM | Comments (0)
June 04, 2007
"This is one of the most worthless claims in the entire development field."
CGD's Michael Clemens is unhappy - see why.
Posted by Dingel at 10:19 PM | Comments (0)
March 21, 2007
Underworld Economics
Raymond Baker & Jennifer Nordin on dirty money:
This enormous disappearance of capital from poor countries—perhaps a cumulative $5 trillion in recent years—should be of keen interest to economists. Billions of dollars in foreign aid have flowed into developing countries over the last several decades—on average $50 to $70 billion a year. These countries, home to 80 percent of the world’s population, often have weak le- gal and administrative structures, large gangs of drug dealers and racketeers, and wealthy elites who want their money elsewhere. The estimated $500 billion in illicit outflows eviscerates foreign aid and contributes to deeper poverty for billions of people. Despite the impact of trillions of dollars of dirty money flowing out of poorer countries, we are still at step one: measuring it.
International flows of dirty money also have implications for the (mis)measurement of trade volumes and balances.
Posted by Dingel at 11:44 AM | Comments (0)
January 22, 2007
FDI diversification in Asia
Great article in the Economist:
In the calculus of costs, risks, customers and logistics that goes into building global operations, an increasing number of firms are coming to the conclusion that China is not necessarily the best place to make things...China is the emerging giant, but the investments that are being diverted away from the Middle Kingdom present the rest of Asia with a huge opportunity to become manufacturing hubs in their own right...
So far, most industrial development in China has taken place in the country's eastern coastal regions, particularly around Shanghai and the Pearl River Delta near Hong Kong. But costs in these centres are now rising sharply. Office rents are soaring, industrial land is in short supply and utility costs are climbing. Most significant of all are rocketing wages. In spite of the mass migration of workers from China's vast interior to the coast, pay for factory workers has been rising at double-digit rates for several years. For managers, the situation is worse still...
Equally important are concerns about growing protectionism. The United States and the European Union are becoming more assertive in holding China to account over its World Trade Organisation obligations. Companies worry that this could lead to sudden interruptions to trade...
South-East Asia has been the chief beneficiary of companies' decisions to diversify out of China. The problem is that the ten ASEAN nations have yet to form a single market. Although the region offers plenty of opportunity for export-based manufacturing, as a single market it remains highly fragmented. Companies want to be able to set up one factory to serve the whole region, but numerous barriers prevent them from doing so.
Read the full piece.
Posted by Dingel at 10:34 PM | Comments (0)
January 18, 2007
Sizable trade effects: tariff evasion and capital controls
Shang-Jin Wei has his hand in a pair of recent papers that sound interesting.
Raymond Fisman, Peter Moustakerski, Shang-Jin Wei - "Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade"
Traditional explanations for indirect trade through an entrepot have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepots may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses based on existing explanations for entrepot trade.
Shang-Jin Wei & Zhiwei Zhang - "Collateral Damage: Exchange Controls and International Trade"
While new conventional wisdom warns that developing countries should be aware of the risks of premature capital account liberalization, the costs of not removing exchange controls have received much less attention. This paper investigates the negative effects of exchange controls on trade. To minimize evasion of controls, countries often intensify inspections at the border and increase documentation requirements. Thus, the cost of conducting trade rises. The paper finds that a one standard-deviation increase in the controls on trade payment has the same negative effect on trade as an increase in tariff by about 14 percentage points. A one standard-deviation increase in the controls on FX transactions reduces trade by the same amount as a rise in tariff by 11 percentage points. Therefore, the collateral damage in terms of foregone trade is sizable.
Posted by Dingel at 08:26 PM | Comments (0)
November 30, 2006
Dollar Dive
The slide towards 2:1 continues.
Dollars per pound sterling:
Posted by Dingel at 07:07 PM | Comments (0)
November 22, 2006
Business Cycle Volatility & The Current Account Deficit
Interesting argument about the current account deficit:
The early 1980s marked the onset of two striking features of the current world macro-economy: the fall in US business cycle volatility (the "great moderation") and the large and persistent US external imbalance. In this paper we argue that an external imbalance is a natural consequence of the great moderation. If a country experiences a fall in volatility greater than that of its partners, its relative incentives to accumulate precautionary savings fall and this results in an equilibrium permanent deterioration of its external balance. To assess how much of the current US imbalance can be explained by this channel, we consider a standard two country business cycle model in which households are subject to country specific shocks they cannot perfectly insure against. The model suggests that a fall in business cycle volatility like the one observed for the US relatively to other major economies can account for about 20% of the current total US external imbalance.
[HT: MR]
Posted by Dingel at 11:19 PM | Comments (0)
October 12, 2006
Financial globalization is incomplete
Some stylized facts about financial globalization from Federal Reserve Governor Frederic S. Mishkin:
Although economic globalization has come a long way, in one particular dimension--finance--it is very far from complete. As documented in the superb book by Maurice Obstfeld and Alan Taylor, Global Capital Markets, financial globalization has made its greatest strides in rich countries. Gross international capital flows, which have risen enormously in recent years, move primarily among rich countries. The exchange of assets in these flows is undertaken to a large extent to enable individuals and businesses to diversify their portfolios, putting some of their eggs in the baskets of other rich countries. International capital is generally not flowing to poor countries and is thus not enhancing their development...
As Nobel laureate Robert Lucas has pointed out, this feature of international capital flows is a paradox: Why doesn't capital flow from rich to poor countries? We know that labor is cheap in poor countries, and so we might think that capital would be especially productive there. Just think of how hugely profitable a factory might be in a country where wages are one-tenth of those in the United States. Capital should, therefore, have extremely high returns in such countries, and we should expect massive flows of capital from rich countries (where the returns on capital should be relatively low) to poor countries (where they should be far higher). In fact, there has been a big increase in the amount of capital moving to emerging-market economies in recent years, but capital primarily still flows from one rich country to another, where the returns on capital are similar.
Thus, financial globalization is far from complete, and that fact raises a set of questions. Should financial systems in developing countries become more integrated with the rest of the world? If so, what should be done to accomplish that integration?
Posted by Dingel at 07:43 PM | Comments (0)
August 26, 2006
American hostility to inward FDI: Virgin America
We all know about Unocal and Dubai Ports World. Ray Seilie points to the latest case of US hostility to inward FDI: a ban on foreign ownership of U.S. airlines is being used by legacy carriers to impede the establishment of Virgin America.
The LA Times editorial on this story is pretty good. Having flown Virgin Atlantic and enjoyed it very much, I wish it were legal for Richard Branson to enter the airline business in the US. Instead, he's merely licensed the Virgin name to a group of American investors. But the legacy airlines are doing their best to bury the start-up in red tape.
"For the first time in six years roughly, the airlines are starting to experience some profitability, and the last thing that the domestic carriers want to see is new competition," said Dan Petree, dean of the college of business at Embry-Riddle Aeronautical University. [CNN]
Virgin shoots back:
Instead of focusing on actual facts that show we are an American-owned and -controlled company, they have created irrelevant conspiracy theories about our application. It is farfetched to argue that U.S. citizens are somehow foreign, that debt is equity or that standard provisions protecting minority investors constitute 'actual control' of a U.S. airline that is clearly managed by U.S. citizens and 75-percent owned by U.S. citizens.
I think the phrase "regulatory capture" implies that the regulation initially had a legitimate purpose. A blanket prohibition of foreign ownership strikes me as an extremely crude method of reducing security risks. As Ray notes, "sadly, domestic airlines have every incentive to inflame this nationalistic fear-mongering."
Posted by Dingel at 10:06 PM | Comments (0)
June 15, 2006
FDI changes ownership, not location
Interesting paper from 2000 that I encountered today:
In Interpreting Developed Countries' Foreign Direct Investment (NBER Working Paper No.7810), NBER Research Associate Robert Lipsey suggests that flows of foreign direct investment (FDI) among developed countries, where most FDI occurs, have little to do with the location of production. To a large extent, they are changes in ownership of specific productive assets, presumably from less efficient to more efficient owners and managers. There may be no change in the geographical location of aggregate production or production in a particular industry.
Posted by Dingel at 07:21 PM | Comments (0)
May 30, 2006
Latest in FDI to Developing Countries
I was going to link to this story, but I see that Pablo Halkyard has a more comprehensive post.
Posted by Dingel at 05:36 PM | Comments (0)
May 02, 2006
Nationalization in Bolivia
President Evo Morales of Bolivia plans to nationalize the oil, gas, mining, foresty, and other natural resource industries. Foreign companies are unlikely to be compensated for their confiscated assets.
"Morales sent soldiers and engineers with Bolivia's state-owned oil company to installations and fields tapped by foreign companies... The companies have six months to agree to new contracts or leave Bolivia, he said." [Forbes]
"Morales had long pledged to nationalize the sector but said repeatedly he would not expropriate companies' assets." [CNN]
Posted by Dingel at 07:07 AM | Comments (0)
March 03, 2006
Best One Liner in regards to Dubai Ports deal
"The Mafia doesn't buy FedEx to smuggle." -- James Carafano of the Heritage Foundation
[Hat tip: Hit & Run]
Posted by Dingel at 11:32 AM | Comments (0)
February 22, 2006
Transnational investment is a two way street
Hamish McRae: "Globalisation is fine, unless it means Dubai"
A Dubai company seeks to buy a British one that happens to operate a string of ports in the US - much to the annoyance of some US congressmen. An international steel group headed by an Indian family seeks to buy a French/Luxembourg steel company, much to the chagrin of President Chirac. A Russian energy group is said to be trying to buy a British gas company, which would certainly cause the fur to fly here. Welcome to globalisation, 2006-style. [Independent]
Dan Drezner has a nice round-up of reasons not to worry about DPW's buyout of P&O. The most important is that P&O doesn't do security at ports.
UPDATE: Drezner has more cases of backlash against FDI.
Posted by Dingel at 08:08 AM | Comments (0)
February 14, 2006
India comes to the West
An IHT piece acknowledges the arrival of India Inc. Groups like Tata and Reliance have survived cut throat competition and are now pursuing acquisitions in markets like the United States.
Posted by Dingel at 09:17 AM | Comments (0)
January 30, 2006
Where's your FDI headed?
The U.S. trade deficit is financed by its attractiveness as a destination for foreign investment. It may be losing its relative advantage -- IHT
Posted by Dingel at 06:06 PM | Comments (0)
January 26, 2006
British wary of FDI in emerging markets
Britain's leading companies are less adventurous than their US and continental European counterparts when it comes to making foreign acquisitions - and they are becoming even shyer, according to research by KPMG, the accountancy group.The study of acquisition trends from 2000 to 2005 shows that continental European companies are five times more active than those in the UK in the so-called Bric economies - the big and fast growing markets of Brazil, Russia, India and China. Continental European companies are also more open to acquiring companies in the "emerging markets" of east and central Europe.
As a result, British companies are in danger of irretrievably sacrificing growth potential to European competitors and depriving shareholders of growth opportunities, the study says...
One explanation for the weak showing appears to be that the types of companies investing most heavily in the Bric countries - typically manufacturing companies in France, Germany and the US - are not well represented in the UK.
But Simon Collins, head of corporate finance for KPMG, said that explanation was losing its force. "The US is quite service-led and there have been a lot of acquisitions by US services companies, particularly in China and India." He said the idea that these economies were drawing a lot of skittish capital was outdated. "It's evident now that there is some very well researched corporate investment going into emerging markets."
The study has tracked 9,808 acquisitions around the world since 2000 with a deal value of $4,230bn (£2,369bn). British companies were on average twice as active as their US counterparts and 40 per cent more active than continental European companies in terms of the numbers of acquisitions. [Financial Times]
Posted by Dingel at 08:58 AM | Comments (0)
November 16, 2005
Foreign Investment: Correlation & Causation
I agree with Paul Staines of the Globalization Institute that foreign direct investment generally has positive effects. A good case can be made that foreign investors aid the growth of developing economies by introducing new competition, technologies, business practices, tacit knowledge, etc. However, the data cited by Staines in his latest post are insufficient to draw that conclusion.
The "rough correlation between the preponderance of multinationals operating in a given country and lower poverty indicators" does not imply causation. Lower poverty indicators likely correlate to greater foreign investment because many things that reduce poverty (credible governmental policymaking, an educated and healthy populace, transparent property rights, etc) also increase returns to investments. Does Staines want us to conclude that the United States was poor until a plethora of multinationals invested here?
My affinity to positive conclusions about the desirability of foreign investment in developing countries can't override my instinct to point out that correlation doesn't necessarily imply causation.
Posted by Dingel at 07:51 AM | Comments (0)
October 30, 2005
Microfinance in practice
Jim at Our Word Is Our Weapon points to Kiva, a website that facilitates person-to-person microlending. This form of contribution sounds a lot better than most charitable development programs.
Posted by Dingel at 06:26 AM | Comments (1)
October 22, 2005
Many Russians fear foreign investment
Pollsters say 80% of Russians are against any foreign investment in their country's military industry, and between 66% and 69% believe foreign capital should be completely barred from the oil, gas, coal, ore and timber industries, other natural resource sectors, and the electricity power industry.The VTsIOM polling center said one of its polls suggested that 51% of Russia's population did not want foreign capital going into aircraft manufacturing, 46% into agriculture, and 42% into the food industry.
Some 39% want banks, investment companies, and the communications sector to be out of reach for foreigners.Between 27% and 33% are opposed to foreign investment in transportation, construction, auto manufacturing, trade, advertising, and marketing. Between 46% and 51% have no objection to foreign investment in those industries but believe it should be subject to quotas.
Very small proportions of Russians are in favor of unlimited foreign investment: 16% are in favor of unlimited for-eign investment in auto manufacturing, 11% and 12% in trade, advertising, marketing, and construction, and a maxi-mum of 9% in other sectors.
VTsIOM said it had questioned 1,600 people in 46 Russian regions. [Interfax, 10.17.2005]
Posted by Dingel at 01:17 PM | Comments (0)
September 30, 2005
World Investment Report Wrap-Up
After three years of decline, global foreign direct investment increased this year, with developing nations gaining a forty percent surge in FDI, according to a UNCTAD's World Investment Report 2005. China, Hong Kong, Brazil, Mexico and Singapore were the top developing FDI recipients, unsurprisingly. While India is gaining, it still lags far behind. UNCTAD thinks that Africa could do a lot more to attract FDI. And this is an odd headline: "Malaysia warms to extraterrestrial investment."
Posted by Dingel at 12:09 PM | Comments (0)
September 22, 2005
Investment Liberalization in India
While trade barriers have fallen over time, barriers to foreign investment remain significant in countries like India and China. That's why I was happy to read this story:
NEW DELHI - The Indian government looks all set to open up the retail sector beginning with food and a proposal in this regard is expected to go before the Cabinet by next month. The proposal is to allow up to 26 per cent FDI for first two years and subsequently increase it after seeing the results to 49 per cent and then to 74 after three years, official sources said. Commerce Minister Kamal Nath had said on Monday that Government was readying a discussion paper on the issue.
In recent weeks, I've been more optimistic about India's development prospects than those of China. India seems to be opening faster; for example, foreigners may hold a 74% stake in Indian banks, while China currently limits foreign investors to 20%. Moreover, a recent article in Foreign Affairs points to a problem that is most obvious in China:
Conventional wisdom has long assumed that economic liberalization undermines repressive regimes. Recent events, however, suggest that savvy autocrats have learned how to cut the cord between growth and freedom, enjoying the benefits of the former without the risks of the latter.
Another sign of improvement in regards to FDI in India:
At least one Indian communist leader has found the courage to shed his party's anachronistic mistrust of global capitalism. Buddhadev Bhattacharya, the Marxist chief minister of West Bengal Province, badly wants the Indonesian tycoon Anthony Salim's $10 billion industrial township project to come to his region. [IHT]
Here's more on Asian FDI trends.
Posted by Dingel at 09:46 AM | Comments (0)
September 13, 2005
Import Denial as Investment Promotion
Here's a sick way to attract foreign direct investment:
Among the reasons for selecting Brazil as the location for the plant, Lenti said import duties on IT products stand at nearly 85% and vendors have a hard time penetrating the market without local manufacturing processes. "The Brazilian market represents 40% of Latin America and it is one of the markets with the highest projections. Brazil was a must," he said.By 2006, the company expects to be producing enough to export products from Brazil, particularly to Argentina, which is part of the Mercosur Southern Cone trade bloc. ViewSonic would enjoy more tax benefits by importing from Brazil rather than from Asia, Lenti said. [BNAmericas]
Posted by Dingel at 07:50 AM | Comments (0)
August 16, 2005
South Korea's Investment Xenophobia
Edward M. Graham of the Institute for International Economics has a very interesting piece on the South Korean government's hostility towards foreign direct investment.
Posted by Dingel at 04:16 PM | Comments (0)
August 11, 2005
NK communists promote foreign direct investment
While hardcore "anti-imperial socialists" like James Petras might object to foreign investment, today even the North Koreans are welcoming foreign firms. Look for communist-run investment promotion offices in Singapore and Malaysia soon.
Posted by Dingel at 10:11 AM | Comments (0)